Insurance can be a great thing. It keeps people from being faced with catastrophic financial consequences when accidents happen or disaster strikes. On a sleepless night, however, a question may come to mind: How do the insurers protect themselves?
 
Insurers, perhaps surprisingly, protect themselves the same way the average Joe on Main Street does. They buy insurance. Insurance for insurers goes by the somewhat odd name of reinsurance market.  
 
Since an insurer’s many outstanding policies can add up to millions or even billions of dollars’ worth of risk, it is common for them to spread that risk over several reinsurance companies. This way, the reinsurance companies themselves are not overburdened if they have to pay out. Spreading the liability protects both the insurer and the reinsurer from the dangers of concentrated risk. (more…)

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